Effect of product variety on market share

Customer satisfaction level is usually measured in terms of price, quality, customization, after-sale-service, product variety, etc. Each firm sets up a distinctive production/marketing strategy to gain competitive advantage by prioritizing the customer satisfaction measures. The market differentiation strategy dirctly results in supply chain performance such as lead time, inventory, customer fill rate and market share. Product proliferation desirable in customization sense often conflicts the economies of scale effect in production side. This paper focuses on the relationship between product variety and market share. Specifically, we investigate how introduction of new product affects the current market share, i.e., formation of customer preference, and provide some insight into the optimal range of product variety.